US Treasuries sell off as markets price in Fed rate rises this year

The 10-year Treasury has been selling off. This is how the yield curve looks like as of January 18th:

An increase in yield means bond prices are falling – hence the term of sell-off when we are talking about fixed income markets.

When we look at the CME FedWatch tool to assess the probabilities of a rate hike this year we can see that this is a foregone conclusion. Take a look at the December 2022 probabilities, which are derived from the Fed Fund Futures contract prices:

We see that there is a 32.8% probability that rates will be within the 1 – 1.25% range; 26.9% within the 1.25 – 1.50% range; and 11.2% within 1.5 – 1.75% range. Adding these probabilities we see that there is approximately 70% chance we will see the Fed Fund rate above 1% by the end of this year (current rate is between 0 - .25%). This tells us that indeed investors are expecting multiple Fed rate rises this year.